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PEER COMPANIES

MUMBAI: The Securities and Exchange Board of India, or Sebi, has warned as many as 40 listed private companies that the June 2013 deadline for promoters to reduce their holding to 75% would not be relaxed, and firms as well as their owners risked sanctions if they failed to comply.

The securities market regulator conveyed its stance to senior officials of 40 companies last week, a person with knowledge of the development said. The list of companies in which public shareholding is below the mandatory 25% includes one of India's top information technology firms, Wipro, as well as the largest private sector airline, Jet Airways. Anil Ambani Group's Reliance Power, DLF, two Essar Group companies, Jaypee Infratech and L&T finance Holdings are also in the list.

Sebi Chairman UK Sinha has reiterated his intention of enforcing the 25% norm on a number of occasions. But last's week exercise became necessary as many companies had not even taken preliminary steps to bring down their promoter holding. By firmly staving off attempts to push back the deadline again, the regulator and government reckon that the capital markets could receive a boost with a large number of public offerings through 2013.

The possible legal consequences of not complying with the public shareholding norms could include barring promoters and companies from tapping the capital markets, except for dilution of stake; shifting their stocks to the trade-for-trade segment (removing scrips from the derivative segment); compulsory delisting and even adjudication and prosecution proceedings. "We have served a clear warning last week. The companies that were called in were told that they would have a problem if they failed to raise the public holding," said the person on condition of anonymity.

Many of India's state-owned companies also have low public holding, as low as 1% in a few cases.

However, they have more breathing time to meet the deadline, which is August 2013, and need to reduce state ownership to 90% as opposed to 75% for private companies. Some staterun firms are looking to offer shares to the public to help a government struggling on the fiscal front to raise much-needed cash, “I see no movement towards it. The companies and their advisors are perhaps thinking that this time limit will be extended. But let me tell you that I am going to make it difficult.

This is a very important requirement.

Three years had been given, more than one-and-a-half years are over, but there is absolutely no movement towards it,” Sinha had said in April at an industry event. “This is something whether you like it or not will have to be treated as sacrosanct.

If there are any requests for making this process simpler, we will meet that,” he had said then.

In June 2010, the Securities Contracts Regulation Rules were amended to raise the minimum public holding requirement to a uniform 25% for all companies. Listed companies with a higher promoter holding were to raise public shareholding by at least 5% every year till such time they met the norms. However, within a month, the rules were amended again to provide an exemption to state-owned companies, with the rules stating that these firms could achieve a minimum public holding of 10% instead of 25% within a period of three years.